The Most Intriguing New Businesses

Power from Pond Scum

Kevin Berner, the 52-year-old CEO and founder of Phycal, is betting that green lagoons of algae are the cure for America's fossil-fuel addiction. Corn may be a good feedstock for ethanol, the nation's favorite biofuel, but algae plants are able to produce up to 100 times more oil per acre, according to the Energy Dept. Plus, algal ponds and containers can be put almost anywhere—from urban rooftops to vacant fields—so they need not displace other crops. And the plants can thrive in dirty or salty water, thus reducing the burden on reservoirs and aquifers.

Prolific as the plants may be, however, would-be producers of algal oil haven't cracked the problem of how to extract the fuel cost-effectively from the tiny, water-borne organisms. That's where Phycal has a leg up, says Berner. Backed by $15 million, the Highland Heights (Ohio) company is commercializing a novel chemical process that continuously squeezes oil from the microorganisms while they're alive. Competing approaches consume huge amounts of power cooking up the plants to harvest the oil, while Phycal's way dramatically cuts energy use and costs.

DESERT STORM EPIPHANYBerner's romance with algae dates back to 2004. That's when he stepped down from a three-year stint running McKinsey & Co.'s manufacturing practice in Cleveland. He quickly turned to renewable fuels, motivated by his stint as an army paratrooper helping to drive Iraq's troops out of oil-rich Kuwait in 1991. "I realized then we can't keep fighting wars over oil," says Berner, a West Point graduate who lives in Cleveland with his wife and three sons.

If the algae business blooms, Berner won't have it all to himself. In the past two years, the number of players developing algal fuels around the world has tripled, to more than 70, says Harry Boyle, lead biofuels analyst at London-based consultants New Energy Finance. That includes fossil-fuel heavyweights such as BP (BP), ExxonMobil (XOM), and Royal Dutch Shell (RDS).

To keep his lead, Berner is building a pilot plant using natural algae strains in Hawaii. It's on track to open in 2010 and should deliver biofuel at about $4 per gallon—on par with the state's notoriously high oil prices.